Certified Supply Chain Professional (CSCP) Practice Exam

What is the main consideration in a make-or-buy decision?

1. Deciding on the price of materials

2. Determining the market demand for products

3. Deciding whether to produce an item internally or buy it from an outside supplier

4. Analyzing employment costs

The correct answer is: Deciding whether to produce an item internally or buy it from an outside supplier

The primary focus of a make-or-buy decision is to evaluate whether to produce a product or component internally or to procure it from an external supplier. This decision involves a comprehensive analysis of various factors, including cost, quality, capacity, and strategic positioning. By assessing these elements, organizations can determine which option would fulfill their operational needs more effectively while also aligning with financial and strategic goals. When organizations consider producing an item internally, they need to evaluate their own production capabilities, machinery, labor skills, and the fixed and variable costs associated with manufacturing. On the other hand, the option to buy requires an assessment of supplier reliability, pricing, lead times, and overall supply chain risk. The other options, while related to different aspects of supply chain and production management, do not capture the essence of the make-or-buy decision. Decisions on pricing materials may inform the cost aspect, understanding market demand can influence production quantities, and analyzing employment costs is a component of the internal production consideration, but none comprehensively define the core challenge of choosing between in-house production and outsourcing.